Independent and hospital-based physicians all wear the same white coats. How can the average consumer tell the difference and what are the implications for health care costs? This edition features Dr. Vivian Ho, a health economist at Rice University's Baker Institute, Lee Spangler, JD, BCBSTX Vice President of Texas Government Relations, and co-host Ross Blackstone, BCBSTX Director of Strategic Influence. You can listen to the complete discussion in podcast form on Apple Podcasts and SoundCloud.

Blue Promise is an online video blog that aims to address complicated health issues with candid conversations from subject matter experts. New editions are published regularly and are hosted by Dr. Dan McCoy, President of Blue Cross and Blue Shield of Texas.

Why is health care so expensive? A new study suggests hospital based physicians contribute to the rising cost and we have the author here to tell us about it. Thanks for joining us for this additional promise. I'm Dr. Dan McCoy. I'm the President of Blue Cross Blue Shield of Texas. I'm here with my cohost Ross Blackstone.

SPEAKER: ROSS

Thank you Dr. McCoy we have Lee Spangler here he is Vice President of Texas Government Relations for Blue Cross Blue Shield of Texas. And Dr. Vivian Ho she's the author of that study. She is a health economist at Rice University's Baker Institute. So thank you both for being here. Dr. Hoe we want to get to the study that Dr. McCoy referenced but before we dig into why you did it and what you found let's just kind of level set for everybody and try to explain what is a hospital based physician and how is that different from an independent physician Lee, do you want to take that?

SPEAKER: LEE

Well a hospital based physician in this context is generally a physician who has a close business relationship with a hospital whether they're hired by the hospital in some fashion through a nonprofit Health Corporation or their practice has been acquired in a joint venture of some sort. So that hospital somehow controls the business decision making of the physician practice.

SPEAKER: ROSS

So how do you tell if if Your doctor is part of a hospital based organization

SPEAKER: LEE

you won't really know as a member or as a patient because they all wear the same white coats the way you generally discover that is how they bill and the method that they used to bill.

A hospital will typically typically do the billing for the physician in those cases whereas a physician owned practice naturally the physician would be the one that's doing the billing and making the decisions about collection.

SPEAKER: DAN

Clearly this has been around for a long time. All right. I mean hospitals have employed doctors since how long.

SPEAKER: LEE

Well technically in Texas they can't directly hire physicians. That's actually been a prohibition since the early 20th century, 1903. But there have been loopholes that have been discovered probably in the last 30, 40 years that allow hospitals to control and nonprofit Health Corporation which then by extension the physician can be hired through that.

SPEAKER: DAN

So it looks like they're employed by the hospital but there's actually a separate kind of financial business entity and the hospital has an interest in that.

SPEAKER: LEE

That's right. The basically the sole owner of the nonprofit health corporations the hospital the hospital gets to dictate the physicians who sit on that nonprofit board. And when you control the board you control the entity the physicians make the hiring and billing decision.

SPEAKER: DAN

So this is kind of a I hate to say it kind of an esoteric decision issue for many patients right. I mean I don't know that most patients would have a concern necessarily about who that employment relationship was with. But this is growing to be a common business strategy among physicians. Is that a fair statement. Have we've seen a growth.

SPEAKER: LEE

Yes we have seen a growth in that and we've also seen increasing consumer patient concern about it. Usually a patient will discover it when a physician that they've been seeing for quite a long while at a particular location all of a sudden starts adding a facility fee to every visit. Well when a hospital purchases a physician practice that becomes an extension of the campus.

[SPEAKER: DAN

So just knowing what kind of level set here a facility fee is something hospitals get to Bill because they have to open the infrastructure and maintain it. And that's part of what a hospital does is provide a facility, hospitals actually a physical location but now they purchase to practice so they're allowed to charge this facility fee on top of that a typical physician charge and that could be new for a patient.

SPEAKER: LEE

That is going to be new for a patient and you're exactly right. A professional charges for their cognition..n cognitive services. They're.. their service is bringing their mind to your problem.

SPEAKER: ROSS

..and enter our health care economist Dr. Ho. It sounds like what they're talking about is really probably why you decided to pursue the research that you did. Is that true and can you tell us what you looked at and what you found.

SPEAKER: VIVIAN

Yeah yeah we got interested in doing this study because there had been a study that had been done in California which showed that physicians who went …patients who went to physicians who were billing under hospital billing number their annual spending would be more than 10 percent higher. But California is different because they were looking at a HMO population and the HMO there are quite large. Texas fortunately currently is more decentralized so we have lots of small physician practices and the question is what happens if those physician practices do get acquired by these these these hospital system. So so we had claims data on PPO patients from 2014 through 2016 and we had information on which physicians were part of a hospital practice and which were part of an independent physician practice and we looked at the patients that we could attribute to those physicians. So ones who we knew were were directly going to those those those physicians regularly for their care. And what we found was that if you went to a physician who was aligned and sort of who was part of a hospital organization hospital owned your spending for the year was 6 percent higher than if you went to a physician who was part of an independent physician group practice. And then we broke down sort of the difference because spending is price times quantity. And then we broke that down into price and quantity and we found that most of the difference in spending is actually due to difference in utilization. And interestingly enough the difference in utilization is when you look at specific categories like we were looking at lab tests and in some of the different types of imaging you know sort of the different C.T. scans and mammography that could be conducted in both types of settings and build under both types of settings that it was more billing under the outpatient setting with the facility fee than it was under the professional fee for the the hospital owned physician practices.

SPEAKER: DAN

So let me break that down for just a minute because this is an important thing says. At first blush I would think that the cost were just necessarily higher for these physician services. But what you're saying is that's not necessarily what the issue was it was really maybe that was part of it but it was really more the utilization of these other resources of cost.

SPEAKER: VIVIAN

Exactly we we you know sort of once we did the overall difference in spending and found the 6 percent difference we broke it down into inpatient versus outpatient versus versus sort of sort of more ambulatory type of services. And then and then outpatient was where the largest difference in spending was it was it was 19 percent. And so we said well let's look at the way that they're billing and and it's these these hospital loan practices are much more likely to bill under the outpatient facility category than under a professional category. And and it's probably due to that facility fee that they can collect

SPEAKER: DAN

And there is no more test actually ordered?

SPEAKER: VIVIAN

No. Not necessarily. It's just that they're they're billed under under the outpatient category than under the. I mean it goes back and forth because we went we went down to just one of many many many different tests. And so you could have higher rates of ordering one type versus the other. But in terms of the percentage that are build build more under in each case it's always billed under the outpatient

SPEAKER: DAN

So one thing you're probably going to hear from the from the critics of the research right is that they're going to say well Dr. Ho these physicians are practicing evidence based medicine or they're following guidelines or is that a tribunal is that even a realistic concern or you're basically saying it's primarily because that facility fee

SPEAKER: VIVIAN

Yeah it's it's sort of the the other the other physicians you know they are still sending their patients else they may not even be doing some of these these tests themselves you know because they're small practices but they're sending the patients to other places to get to get them done. They're just being billed in a different manner.

SPEAKER: DAN

I think the example let me walk you through an example to make sure we're clear on this is that if if an outpatient cardiologist that doesn't work for a hospital does maybe an EKG in their office they might just bill an EKG. It gets added to their super bill that gets sent to the insurance company or the patient and that gets paid. But in this model the patient needs an EKG they might literally literally walk next door or down the hall to a different room and get an EKG and it might get charged at a higher fee. But the real charges there could be an added on facility fee which greatly supersedes the cost of the EKG, is that fair?

SPEAKER: VIVIAN

Yeah absolutely. I mean it could be you know you've been going to the same doctor for years and and when it's an independent physician practice there's no facility fee there and then you go back the next year for the same exact test and suddenly it's it's hundreds of dollars higher.

SPEAKER: DAN

And does that account for the 6 percent you think, totally?

SPEAKER: VIVIAN

Uhm, You know. It's it's hard to say but I think it's a majority of it because it all is in the outpatient in the outpatient category spending which sort of lines., we also broke it down by what are called Bado's categories. And we did find a significant difference in spending due to imaging which is where a lot of this this outpatient billing differential occurs.

SPEAKER: ROSS

So so the bottom line is that doctors who are associated with hospitals generally are more expensive. Is that that real in an and not show what you would think it kind of contradicts what you would think because usually in most other industries when when organizations consolidate they are able to leverage resources and get a bigger bang for their buck so the prices go down.

But it's different in healthcare.

SPEAKER: VIVIAN

Right. Right. And I think I think some people thought vertical integration of hospitals and physicians would be a good thing because it would lead to more coordinated care. But the problem the difference in healthcare versus other industries is that we have a lot of fixed prices. And people have generous insurance. And that's what leads to prices that are not market based but then result out of the function of what's what's going on in terms of Medicare reimbursing for these outpatient facilities outpatient bills but then also private insurers also follow along with that practice.

SPEAKER: ROSS

Let's let's take a break here. Dr. McCoy then we can come back and talk about a little more detail of how we got to where we are and where we're heading.

SPEAKER: DAN

Thanks for being here. Thanks for joining us for this edition of The Promise.

Telligent is an operating division of Verint Americas, Inc., an independent company that provides and hosts an online community platform for blogging and access to social media for Blue Cross and Blue Shield of Texas.

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